At the peak of the Internet frenzy and tech bubble in 1999, there were a lot of grand forecasts being thrown around about online retailing.  Amazon was going to rule the world and all the other e-tailers were going to stick it to the brick-and-mortar stores.  Now that we have some wisdom of experience from the past 7 years, go tell that to EToys and the other cyber stores that are less than virtual, in fact, most of them no longer exist.   But what about those forecasts from the good old days that threw around figures like 600% growth?  I decided to research what was said back then and compare that to actual results.  Amazingly, Forrester’s numbers turned out to be pretty accurate, and I’ll have a greater respect for their estimates from now on.

Cyber Monday is hyped as being the biggest online shopping day of the year, which is a myth by the way.  According to comScore, it is usually about number 10.  But if you are sitting there at your desk this Monday morning and get the urge to start buying some more goodies, I wish you luck.  If nothing else, you’ll contribute to some great statistics or forecasts for future online sales.

Black Friday has passed and I did not get trampled as the doors opened to my favorite retailer after sleeping outside in long, cold lines. That’s because I wouldn’t do something like that. But those stories are disturbing to me and not because people are so consumed by shopping. I saw and heard too many instances of retailers taking advantage of consumers. It used to be that bait-and-switch or purely false advertising was a rare occurence that was structured to avoid detection. This year it seemed to be commonplace, in-your-face retail and no one is ashamed to be caught by it. I understand the fine line of using ads to attract consumers to stores before they spend their dollars elsewhere, but this was not a fine line. I wonder how many of those loyal shoppers will still be loyal after braving the elements and violent bargain hunters only to hear that the 4 units of $200 computers or plasma tv’s were sold out in the first few seconds. Rain checks? Yeah right!! People got sucked in by ads for amazing values and the attitude of many retail employees seemed to take joy in the game.

Every year, the Monday following Thanksgiving is full of analysis about Black Friday and what this means for the state of the consumer and the remaining shopping season. I usually ignore it, because I don’t think it proves anything. I do think Dana Telsey is sharp so at least that will be worth watching, but otherwise, it’s questionable data. Some years it has been good but the rest of the year disappoints. Other times the reverse is true. Regardless, we’ll certainly hear our share of retail mania tomorrow. Maybe I should avoid it all and spend my day shopping!!

Despite the large increase in oil prices, most of the big airline stocks are at or near their 5-year highs. Even more striking to me is how far away they are from their lows in the first quarter of 2003. Of course, this doesn’t really apply to Delta or Northwest who are now trading on the pinksheets, but for the airlines that managed to beat down their unions into concessions, offload pension obligations or make it through the bankruptcy process, it’s been a great ride for the stocks. Travel demand has been strong and until there is another terrorist attack in the US, I don’t see that changing. For anyone that flies a lot, it’s no secret that flights are packed and if you make it onto a plane that is not oversold, it is almost impossible to find a seat that you don’t feel like you are sitting on your neighbor’s lap. I guess that’s all good for the airline financial statements, but the numbers are not that impressive. From a fundamental analysis perspective, I have a tough time with airlines. They just don’t make money and that is a historical fact, except for Southwest which has not had good stock performance compared to the others who consistently lose money. So go figure! As much as you may want to rely on Price-to-Sales or multiples of EBITDA, there are good reasons why many investors, financial advisors, or portfolio managers categorically refuse to buy airlines. But as it relates to portfolio performance, those reasons have not worked out too well.

Clearly, there has been an appetite to buy them, but I am rather conflicted on whether I want to fly them. Not that I have much of a choice, but after I spoke to an airline captain for a major carrier on my most recent trip, I am certainly thinking twice. There’s something about pilot experience that comforts me. After the bumpiest rides due to bad weather or mechanical failures, I have appreciated seeing an older captain thanking passengers on the way off the plane. For the most part, we only hear about pilots when its time to strike or when there’s an accident or if they get caught having a few drinks before takeoff. None of those images are good, but they are very rare and for obvious reasons of sensationalism in financial media, they get a lot of airtime. Amazingly, the story people should be hearing about hasn’t caught much attention so I am going to give it a shot.

Since 1959, the FAA has sanctioned age discrimination of commercial airline pilots according to the “Age-60 Rule.” The rule is actually part of a law called Federal law, FAR 121.383 (c) that says if you are 59 and 364 days, you are fit to fly and the next day you are not. Defenders of Age 60 say its not forced retirement and that the pilots are still able to stay in the aviation industry as trainers or anything else outside the cockpit. That’s as ridiculous as telling a 60+ brain surgeon that he cannot save lives anymore, but he can stay in the medical profession as an orderly. I get the whole thing about a pilot having a lot of lives in his hands, but I wonder how many times we worry about cruise ship or ferry captains over 60, or bus drivers, or cab drivers. It’s not as dramatic as imagining a plane crash but nonetheless, there appears to be a safety issue there just as well.

Unions are notorious for protecting the rights of their members, especially for issues like discrimination. So you might think that the two big unions, the Air Line Pilots Association and Allied Pilots Association, would be out there fighting against Age 60. In this case, the unions have been long-time supporters of the discrimination and are fighting to keep it in place. They cite safety as the main concern, but after reviewing the various studies and experts offered up by both sides (most of which can be found online), there appears to be minimal-to-no evidence that there is a health safety issue. However, since the law was put in place in 1959, it actually appears to have worked - no air catastrophe has been caused by an old pilot having a heart attack, forgetting to turn up his hearing aid, dropping his coke-bottle glasses, arthritically slowed reaction times, or going senile. But that is a stupid argument given that in the past 46 years, EVERY accident, near miss or other air traffic problem caused by “operator error” has been due to pilots under 60 years old. It is impossible to know how many accidents would have occured with over 60 pilots and it is equally impossible to know how many problems could have been avoided with more experienced aviators.

I doubt there is a single pilot facing premature retirement that would advocate that weakened physical or diminished mental capacity should be tolerated for anyone commanding a plane with so many lives at stake. Look around the terminal and try to find a pilot (young or old) that appears to be out of shape. Every six months airline captains must complete grueling physical exams administered by FAA-certified medical examiners and proficiency tests in the simulator. Bad vision, poor hearing or elevated blood pressure and you are likely grounded regardless of age. Older pilots don’t want special treatment, but they don’t want to lose their jobs without justification other than their number of days on the planet. The FAA has continuously opposed statistical facts and in the various legal challenges, have preferred to use a “common knowledge” argument, which says every sensible person knows that as people get older, especially after 60, there is a decline in performance. I understand how this resonates with many people who prefer to disregard evidence in favor of personal experience. We all know people over 60 who are not fit, either physically or mentally. So what? - we also know quite a few under 50 who are not fit. Oddly enough, the FAA gives exemptions for pilots who have had head injuries, alcohol and drug dependency, and some heart conditions, as long as they are under 60. Does that make you feel safe relative to a fit pilot that happens to be over 60? By the way, if you are over 60, you can still fly any plane in the same airspace, many of which are of higher performance levels than airliners. You just cannot fly for domestic airlines that carry passengers.

Air travel is global and you might wonder what the rest of the world is doing about this issue. Since Thanksgiving Day, the majority of the world’s non-US pilots are following a new standard of the International Civil Aviation Organization which allows a pilot to fly until 65, as long as the other pilot in the cockpit is younger than 60. So we now have a situation that permits foreign carriers to have over-60 pilots flying into US airspace, but not domestic airlines. If safety is really the issue for the FAA and the “young” pilots unions, I wonder how much less “safe” I will be the next time I fly a non-US airline. In fact, some of our forcibly-retired pilots might actually be jumping cockpits to command one of those planes. Over time, we will be able to count the number of accidents involving an over-60 pilot of the international airlines. I expect that just one will set off a great debate and yet, the ones involving less experienced pilots will likely not even mention their age. Time will tell.

If you think the Age 60 Rule has to be unconstitutional, you might be right, but each time a relevant case has made its way to the Supreme court, it was not acted upon for one reason or another. You might also wonder why Congress has not taken action to update this law. Both Democrat and Republican politicians have authored new legislation in the House and Senate, but they just don’t gain traction. In the political mess we call Congress, saving a few jobs every year for older pilots probably isn’t exciting enough. There are so few consequences for keeping this law in place and quite a lot of bad PR if an older pilot crashes. Even the AARP and ACLU have not provided enough pressure to get this discrimination off the books.

But the law really has about as much to do with politics as it does with safety. The real issue is money. More experienced pilots get better and more lucrative routes on larger planes that command higher salaries. With the cutback in planes and routes during the consolidation and financial restructuring that has occured since 9-11, these jobs are much more in demand. 2001 was one of the last times that a political effort made some progress to abolish the Age 60 rule and back then, there was a shortage of pilots - now there is a glut. Just use the “common knowledge” argument and any “sensible” person will see what this is all about -getting rid of the older pilots has to do with financial “safety”. Even the retired pilots would likely not pretend that much of the reason they want to continue flying has to do with money. Just remember all those salary concessions from the pilot unions and then the shattered retirement plans of several carriers which are now in the hands of the federal government’s Pension Benefit Guarantee Corporation. It’s about the money for both sides, so let’s not pretend it’s for the safety of approximately 750 million passengers that will fly in the US this year.

Enjoy the friendly skies!!! Pilots of all ages are amazing and should not be discriminated against. I hope you spend more time worrying about buying them than flying them.

I can hear Kerkorian humming what must be his favorite song…

“Love me tender, love me sweet, never let me go.
You have made my life complete and I love you so.”

My apologies to anyone offended by the image of Kirk as an Elvis impersonator. I guess I should be apologizing to anyone offended by the image of Kirk as a long term GM investor. As I wrote in October, I have been extremely skeptical about what was being represented as his motives. The last time he sold in December, it was explained as a tax strategy and he made good on that by repurchasing the shares later. Today the news is not so promising: he agreed to sell 14 million shares at $33 in a private transaction. I recognize that he will be left with 7.4% of the company, but the image of Kirk as a long term investor in GM just doesn’t look so certain anymore. By the way, he wasn’t the only big seller of GM recently and yet, that seemed to go unnoticed by many people. Last Monday it was disclosed that General Motors Corp.’s second-largest stockholder has sold 13.4 million of the company’s shares since the end of June and almost 34 million shares since the end of March.

This week I got lucky and gave GM a DOWN signal before this news hit. On top of the November 13th disclosure of Capital Research’s lowered position, there was a sector move that I saw which caused me to also go negative on HMC, TM, NSANY and VOLV. Daimler Chrysler was the only auto / truck manufacturer that escaped me (at least for one more week!)

As the song goes…Kerkorian seems to love tenders. He did it with Chrysler and that worked out just “ok.” In May of 2005, Tracinda put up a tender offer for 28 million shares of GM at $31, a 13% premium over the market value. Now a year and a half later, he sells for $33 and that’s not so impressive to me. But he must still love tenders, because he launched a new tender for another 15 million shares of MGM at $55/share, about 12% higher than yesterday’s close. The premium isn’t the only thing similar to his GM shenanigans. “This tender offer demonstrates our confidence in MGM Mirage and its management and our commitment to the company’s future,” a Tracinda representative said in a statement which was eerily similar to what they said about GM. HMMMM? I know things are going great in the gaming world, but don’t you wonder why he needs to increase his 56% position to over 60%? He gave himself a $800 million pop on his existing MGM stake. Love me tender….. He lost about $170 million on GM since Friday. Love me tender…..A net of about $600 million.  Love me tender.  Now if he can only find a private equity firm to take him out at even higher prices.

Caveat Emptor! Caution! Sucker! In the aftermath of the Equity Office bid, people are starting to ask, “Is it a good idea to buy from Sam Zell?” That’s a good question and one with many answers- “No”, “Yes”, “Maybe”, “Depends.” Sam Zell is a fantastic investor in real estate and he made his money from buying low, managing assets expertly and selling high. Now he’s cashing some of that in by selling EOP and suddenly people are wondering whether we should feel sorry for the buyer? I get a kick out of the simultaneous absurdity. On one hand, commentators are asking whether this single event is proof of a top in REIT valuations and on the other, they are glamorizing the brilliance of private equity. Let’s remember who bought from Zell - Blackstone did and they do not make a habit of losing money. Investors are pumping up the private equity funds, the money is put to work, and then at some point in the future, we see an IPO. When EOP or some other restructured entity of its former self comes public, will we be cheering the opening day appreciation or will we be saying “Caveat Emptor” and “is it a good idea to buy from Blackstone?”  Don’t feel sorry for Blackstone about them overpaying for anything.  If they bought high, they’ll do what a lot of great investors do, they’ll sell higher.

A lot of commentary and observations about the VIX have me vexed. About 4 years ago, I stopped watching the VIX on a regular basis so I decided to revisit the whole thing today and see if I was being ignorant of some magical indicator that would tell me there is a decline on the way. Oh that’s right, I’ve been saying that for about 2 months(and been wrong by the way) without even looking at the VIX. I’ll save you the suspense - I don’t believe there is much predictive info in the VIX anymore for the average investor.

It used to be said, “If the VIX is high, it’s time to buy” and “If the VIX is low, it’s time to go.” But in reality, that only was relevant to the true believers in the contrarian camp of which there are so very few. For the majority of the market, the VIX was just a wonderful part of the wall of worry. By the time it was apparently correct, the VIX would reverse course so quickly that you had no time to do anything. After all, the math underlying the VIX is based upon the options market which is about as fast moving as you can get. When the market was decidedly bearish in August to October of 2002, the VIX was around 40 So if you had followed the old rule of thumb, you would have bought - but did most people? Nope. Most people waited until March 2003 to buy heavily and that was when the VIX was at 30 (still high, but not relative to 6 months earlier).

Since the bullish trend in the S&P began, the VIX has declined steadily. Aha!!- you say. This thing is really predictive. But hold on, it was in the 10’s in July of 2005 which is the same level that commentators are obsessing about today - should you have sold back then? Since July of 2005, the market has increased about 15%. Herein lies the danger with the VIX. It’s right some of the time and it’s wrong some of the time. How do you know which one to pick?

In my opinion, the best thing you can do with unreliable indicators is to throw them out altogether so they do not negate the benefits of good ones. I know for certain that if the market declines in the next few weeks while the VIX is about 10, there will be a bunch of new believers in this indicator. I will not be one of them, but I will feel stronger about the other things I use to develop my market bias.

Some smart people look stupid from time to time. Conversely, some stupid people look smart every once in a while. The same goes for investors and take your pick which one applies to me - I won’t be offended. But lately, I hear all the happy talk about private equity deals, IPO’s like NYMEX, excessive bullishness and it’s making some smart people look stupid to me. For instance, I like Cramer (not his style so much but in general I do) and yet, when I hear him whisper on CNBC that this is the “best market he has EVER seen” - it sounds “dum” to me. It’s easy for some stupid people to look smart right now, but that condition is short-lived. Try not to buy into what other people are saying or doing at the moment, come up with your own assessment.

The market traded sideways for most of last week and the HEDGEfolios Timing Indicator reflected a moderation to the weakening technicals that I have been seeing for the past few weeks. When I zero out the reversals I did on the REIT signals, the net effect would have been a marginal decline in bullish strength. Overall, the market saw less selling pressure; although not a significant amount of new buying power. I don’t want to come across as a stupid guy sounding smart, so I’ll just say that it was a slightly bullish week.

The rest of this trading week is largely a throwaway given that many investors are already on their way to turkey dinner. However, I will not be taking any additional time off. This is a perfect opportunity for me to do extra research and watch what happens. Every few years, the two days surrounding Thanksgiving are surprisingly volatile. Hopefully, that will not happen and we can return next Monday to an orderly market.

On November 4th, I wrote that a significant amount of money was coming out of REITS and consequently, I changed many of their signals to DOWN. One of the few UP signals I was lucky enough to retain was Equity Office (EOP). Not that I take much consolation from being surrounded by analysts that feel like me, but a few others were sounding the alarm. REIT valuation metrics were telling me that they were overvalued relative to the market and compared to historical averages for the sector. More importantly, the performance over the past 5 or 6 months had pushed many of their yields down significantly below the 2-year Treasury and most money market accounts, for that matter. During earnings season, a string of REITs either missed their estimates or provided weak guidance.

A selloff made so much sense, but early last week there was a very weird rebound in the shares and it was so broad-based that I decided to keep a closer eye on it. I couldn’t believe it, but for some reason, selling pressure almost stopped by Tuesday of last week and then the buying came in. It was more than just short covering of positions (note the short ratios of various REITs) and prices were on the rise again. The news of Blackstone’s bid for EOP prior to yesterday’s open was all I needed to convince me to reverse course on a bunch of the REIT DOWN signals that I had given within the last few weeks.

I hate doing that, but these kind of moves are tough to fight - especially after the first small pullback in a 6-month period. Here’s where it gets ugly - I FULLY EXPECT TO CHANGE THEM BACK TO DOWN SOON. None of this upward move makes sense to me, but my focus at HEDGEfolios is to give signals based upon the probability that I see stocks going up or down, regardless of what I personally think. At some point though, you have to wonder how many other deals are out there for private equity to buy all the REITs that went up in sympathetic speculation. For the moment, my REIT signals have been beaten by Blackstone and even more, by all the follow-on trades that bid up the other symbols. If nothing else, it has become a convenient opportunity for holders to sell more of the REIT shares at inflated prices to speculators that love to imitate smarties like Blackstone. For my part, I take no shame in being beaten by the best and I’ll just try to beat the rest.

Here is a list of UP signals that I think will be fun to watch this week. As usual, I am going to warn you that these are only ideas for you to consider with your financial advisor. Many on this list are at key support levels so any failure here and they will probably get painful. Tight stops are advised for the market in general right now and lists like this in particular. You may notice that this list is about 50% shorter than the last two I did on 10/24/06 and 11/6/06. Maybe it’s a sign that my negative bias is creeping in, but I don’t think so. There are just less stocks that look like they are going to go on a run to me. Regardless, here they are:

ASPM, ASVI, AVAN, BCRX, BGG, BPFH, BRL, BRW, BSX, CATT, CHS, CKP, CNET, CONN,

COSI, CPSI, CQB, CRR, CVCO, DUSA, EVC, EXTR, FINB, FLE, GB, GLT, GRP, GSIG, GW,

GY, GYI, HKF, HOV, IN, INTV, ISON, IVC, JDSU, JOYG, KRY, LCUT, LLTC, LM, LPX, MCRI,

MDT, MEG, MIND, MMS, MRCY, MRVL, MSM, MSPD, NBIX, NBR, NGEN, NKTR, NOIZ, NPSP,

NTMD, ONB, PLAB, PLUG, POP, PRM, PRX, PTEN, PWAV, QTM, RDC, RDEN, RMIX, RS,

RUTH, SAPE, SGA, SHLO,SLAB, SMBI, SMTC, SONO, SPSS, STC, STJ, STLY, STST,

TECUA, TMR, TRFX, TWP, TWW, UB, UPFC, USAK, USG, USPI, UTEK, UTI, WFII, WHI,

WITS, WRSP, WSO, WSTL, WTFC, WYN, XXIA, ZRAN

There were rumors on Friday that US Steel (X) was a target for acquisition by Russia’s OAO Severstal and a group of Russian ore producers. Regardless of whether the source (Russia’s Kommersant newspaper) or the story is credible, US Steel’s shares surged $6, or 9% and the rest of the steel sector got a boost. It couldn’t have come at a better time for anyone who was long steel stocks. Before Friday, the charts showed US Steel and many other steel stocks bending over and unless this M&A hype holds, I suspect that they will decline anyway.

If the rumor eventually turns out to be true and not just a confusion between US Steel and OS (Oregon) Steel, I see it as one of the most IRONic (get it?) and emblematic stories of global competitiveness and simultaneously, protectionism. It will certainly test the Republican-led fearmongering that Democrat protectionists will hurt the US stock markets. I am always extremely concerned about any restraint of free trade, but as it relates to steel, Republicans and specifically, the current administration have been hypocrites.

In March 2002, President Bush signed a steel deal that imposed tariffs as high as 30% on imported steel and infuriated key US trade partners such as South Korea, the European Union, and Japan. As odd as this was, it was not the first time that a Republican was a steel protectionist. President Ronald Reagan pressured South Korea, Japan and other countries to implement voluntary export restraints on steel (and automobiles) in the mid-1980s. Stranger still was the fact that President Bush’s 2002 action was taken largely due to alleged dumping that occured in the 90’s during President Clinton’s tenure and despite Clinton’s election promises to protect to the unions and steelworkers. Even Senator Byrd (D) - W. Virginia said, “This administration would rather stand aside to help save jobs in Asia while American jobs drown in a sea of cheap steel from abroad. This administration (Clinton) stands aside while foreign steel floods into this country and washes away families and communities.” Whether it was dumping or the impact of a strong dollar, it was estimated that 20,000 steel workers across the country lost their jobs in the 90’s. Leo Gerard, president of the United Steelworkers of America union in 2002, cheered Bush’s action and said “It’s not as comprehensive as we had hoped, but it certainly is the first time we’ve seen some light at the end of a long, dark tunnel.” Republicans (Reagan and Bush) being protectionist, Democrats (Clinton) not being protectionist, Senator Byrd criticizing a Democrat president, unions applauding a Republican president…. when it comes to steel, things are all mixed up!

Clinton’s inaction did not cause the problem - that happened since the late 1960s where the domestic integrated steel sector obtained trade protection in the form of quota systems, anti-dumping practices, and other protectionist devices. These schemes kept steel prices in the US higher than the rest of the world and came at a great cost as well. US steel producers lost their competitive advantage with the international players who produced higher quality steel at lower prices. It was easy to blame imports in the 90’s, but the real problem had been forming for decades of protectionism and now that China and other emerging markets have an insatiable demand for steel, we are facing the consequences.

First, it was Arcelor buying Dofasco and then last year, Mittal made a play for Arcelor and there was a concerted effort by the governments of France, Spain and other members of the EU to block it -another form of protectionism. Then there was a rumor that Arcelor would try to buy US Steel to impede Mittal’s efforts. Once that rumor was quashed, a new one started with US Steel supposedly looking at AK Steel. Last week it was Severstal buying US Steel and today its Evraz buying Oregon Steel and CNS trying to outbid Tata for Corus. Well, you get the picture. It appears that competition on a global scale requires getting as big and efficient as you can, not living in the bubble of US protectionism. The world’s steel market is being dominated by a few companies and I think the list is a few mergers away from being done.

The question is whether the US and our protectionist politicians (on both sides!) will be able to handle an acquisition of US Steel. Just consider the name and wonder how people could allow the image of a Russian company owning an American institution. When you think of the industrialization of America, it’s hard to avoid the image of workers in US steel mills. I didn’t notice opposition to Mittal’s purchase of International Steel in 2004, but that was a different case since Wilbur Ross had saved the pieces from the scrapheep of steel. We had a problem with CNOOC trying to buy Unocal and that was nothing compared to the significance of this deal. It’s going to be tough if a foreign steel producer makes a bid, and it will test our political leadership. In my opinion, the history of steel protectionism has put us into this situation and it will not save us going forward.